TNT faced with few options after failed merger

Wednesday, January 16, 2013

TNT Express has been plagued by managerial and operational issues, and with the latest blow coming in the form of a dead merger with UPS, the company will continue to lose market share, but will otherwise “muddle along,” according to an analysis by BB&T Capital Markets.
DHL, UPS and FedEx will continue to make inroads against the European integrator.
Analysts for BB&T don’t anticipate FedEx jumping in to try for TNT Express, after the European Commission privately rejected the merger, for a number of reasons. FedEx, the analysts wrote, has its own cost-cutting and restructuring issues, and the company might be wary of the European Commission after its dealings with UPS. Finally, BB&T thinks FedEx will focus on capital expenditures to replace older planes in its network.
DHL isn’t a possible match, according to BB&T, because the integrators are too similar. Plus, EC scrutiny in any deal between the two European companies could be just as stringent as the failed UPS deal.
“TNT faces an uphill battle to try to restructure, but will most likely keep losing market share to the big three and could eventually be driven out of business,” the analysts wrote. “However, before the final nail is in the coffin, parts of the company may be sold off.”
If parts of TNT are disassembled, the analysts wrote, FedEx or DHL might be interested in TNT’s ground network, among other portions of the company.
UPS has emerged from the debacle relatively unscathed and in a good position for growth, according to BB&T. The analysts expect UPS to report it has seen solid growth in all four segments during this last quarter. The integrator will continue to grow its healthcare segment and expand its reach in China, Latin American, Vietnam and India.
Ultimately, pulling out of the deal before the European Commission’s ruling officially came down was a good decision, the analysts wrote. Paying the $267 million termination fee won’t seem like that big of a hit in the long run.
“Withdrawing the company’s bid, despite the termination fee, shows the magnitude of the obstacles that UPS perceived it was faced with to make the deal work,“ the analysts wrote. “At the end of the day, we applaud management for walking away from a process that had become too onerous and ultimately not as profitable for shareholders as originally thought.” - Jon Ross